PEG: PRICE/EARNINGS TO GROWTH RATIO (Estimates) | |||||||||

Definition | |||||||||

The PEG ratio (Price/Earnings To Growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. | |||||||||

Calculation Rules | |||||||||

PEG = PE / Earnings Per Share Growth (e) Example : The PEG (year N+1) is calculated by using PE (year N+1) divided by estimated EPS Growth between year N+1 and year N+2. Consensus estimates calculated by FactSet are based on estimates that have been validated via broker research within the past 100 days. | |||||||||

Comment | |||||||||

In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rate. | |||||||||

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